Tax season can often feel overwhelming, but understanding the potential tax benefits and deductions available to you can help reduce your taxable income and save you money. Many taxpayers miss out on valuable deductions simply because they aren't aware of them or don't track the necessary expenses throughout the year. Here’s a breakdown of some tax benefits and deductions you might be missing out on:
1. Charitable Contributions
What It Is: Donations to qualified charitable organizations are deductible, which can reduce your taxable income.
Common Misses: People often forget to track small or non-cash donations, such as clothes or household items. You can deduct these donations if you get a receipt, even if they’re not cash donations.
Tip: Keep records of all charitable donations, including any receipts, bank statements, or pay stubs for payroll-deducted donations.
2. Medical and Dental Expenses
What It Is: You can deduct medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI) for the year.
Common Misses: Out-of-pocket expenses for prescriptions, dental care, vision treatments, and even transportation costs to medical appointments can qualify. If you have a high deductible health plan, keep track of any expenses that exceed this threshold.
Tip: Consider combining expenses from multiple years to surpass the 7.5% threshold, and remember to include insurance premiums, including long-term care insurance, as part of your total medical expenses.
3. Student Loan Interest
What It Is: You can deduct up to $2,500 of student loan interest paid in a given tax year, regardless of whether you itemize deductions or not.
Common Misses: This deduction phases out for high-income earners, but many individuals don’t take advantage of it or forget to claim it.
Tip: Even if you don’t receive a Form 1098-E, keep track of any payments made towards student loans, as you might still qualify for a deduction.
4. Home Office Deduction
What It Is: If you work from home, you may be eligible for a home office deduction. This applies whether you're self-employed or an employee, though it's primarily relevant for the self-employed.
Common Misses: Many people overlook this deduction because they assume they need a separate room dedicated solely to business. In reality, the space doesn’t have to be a full room—it just needs to be used exclusively for work.
Tip: If you’re a remote worker, you can deduct a portion of your home’s expenses (e.g., utilities, internet, rent, mortgage interest) based on the square footage of your office space.
5. Retirement Contributions
What It Is: Contributions to retirement accounts like a 401(k), IRA, or SEP IRA are tax-deferred, meaning they reduce your taxable income in the year you contribute.
Common Misses: Many individuals don’t fully take advantage of employer-matching 401(k) contributions, or they don’t max out their IRA contributions. The limits for 2025 will likely be higher than in prior years, so contributing more can further reduce your taxable income.
Tip: Consider contributing the maximum allowed to your 401(k) or IRA each year, and if you're self-employed, look into establishing a SEP IRA for even larger contribution limits.
6. Child and Dependent Care Credit
What It Is: If you pay for child care or care for a disabled dependent while you work or look for work, you might qualify for the Child and Dependent Care Credit. This can be up to 35% of your qualifying expenses.
Common Misses: Some people don’t claim this credit if they don’t have formal daycare arrangements. However, even informal care (e.g., paying a babysitter) might qualify.
Tip: Keep track of all child care expenses and make sure you have receipts or records from any daycare provider, babysitters, or care facilities.
7. Education and Tuition Deductions
What It Is: The American Opportunity Credit and Lifetime Learning Credit allow for deductions or credits on qualified tuition and expenses. Additionally, there are deductions for student loan interest.
Common Misses: Many taxpayers fail to claim education-related credits, even if they qualify, because they don’t track their education expenses or mistakenly assume they don’t qualify.
Tip: Keep receipts for tuition, textbooks, and other qualified expenses. Additionally, check with your school to ensure you receive the proper documentation to claim these credits.
8. Energy-Efficient Home Improvements
What It Is: If you make energy-efficient upgrades to your home (e.g., installing solar panels, energy-efficient windows, or electric heat pumps), you may qualify for tax credits.
Common Misses: People often forget about available credits for energy-saving home improvements or don’t realize they apply to a broad range of upgrades.
Tip: Keep all receipts and documentation for any energy-efficient improvements to your home, as they could qualify for a federal tax credit.
9. State and Local Tax (SALT) Deduction
What It Is: You can deduct up to $10,000 of state and local income, sales, and property taxes (SALT) from your taxable income.
Common Misses: With the SALT cap in place, many people don’t realize that combining taxes paid for property, income, and sales can sometimes maximize this deduction.
Tip: Keep accurate records of all state and local taxes you’ve paid and be aware of the cap on these deductions. It might be worth prepaying certain taxes before the year ends to maximize this deduction.
10. Tax Loss Harvesting
What It Is: Tax loss harvesting is the strategy of selling investments that have lost value to offset capital gains taxes on other investments you’ve sold for a profit.
Common Misses: Many taxpayers forget to offset their gains with losses, particularly if their investments are down. This can help reduce the overall tax burden on investment income.
Tip: Work with a tax advisor or financial planner to identify opportunities for tax loss harvesting, especially if you’ve experienced any market downturns in your investment portfolio.
11. Job Search and Work-Related Expenses
What It Is: Some job-related expenses, like the costs of job search (e.g., resume preparation, travel), can be deducted. However, for most employees, these deductions are now only available if they are incurred as part of self-employment or freelance work.
Common Misses: Employees often overlook job search expenses, especially if they aren't aware of the rules. However, self-employed individuals might miss deductions for work-related costs like home office supplies, travel, and education.
Tip: Keep records of any expenses related to your job search or freelance work. Track things like interview expenses, travel, and home office setups.
Final Tip: Keep Track of Expenses Year-Round
Many of these deductions require good record-keeping throughout the year. Whether it’s logging charitable donations, saving receipts for medical expenses, or tracking retirement contributions, staying organized can help ensure you don’t miss out on valuable deductions. You may also want to consult with a tax professional to make sure you’re maximizing your savings.
By paying attention to these often-overlooked tax benefits and deductions, you can reduce your taxable income, maximize your refund, and ensure you’re not missing out on money you’re entitled to.
